Working Capital Per Dollar of Sales

From The Hoss's Mouth

Working Capital Per Dollar of Sales is another financial calculation investors use when analyzing the performance of a company. This calculation tells the potential investor the approximate working capital a company should have.

Simply put, working capital is Current Assets minus Current Liabilities. Working capital per dollar of sales is the Working Capital divided by Total Sales and is expressed as a percentage.

Working Capital Per Dollar of Sales = (Current assets - Current liabilities)/Total Sales.

Current assets and liabilities can be found on a company's Balance Sheet, and total sales is found on a company's Income Statement.

The trick for investors is recognizing the fact that working capital per dollar of sales varies across industry types.

For example, retailing businesses with substantial low cost sales require a working capital per dollar of sales of about 10 to 15 %, while industrial manufactures who produce high cost merchandise require 25 to 30%. Companies such as fast food chains, due to the cash nature of their business, often operate with a negative working capital per dollar of sales.

Smart investors, when analyzing prospective companies, are always cognizant of the fact that the character of the business plays a huge part in determining the amount of working capital per dollar of sales a business requires.

Money Magazine Hoss hopes you will find this information useful.

Stay on Track,

Money Magazine Hoss

Next Hoss Cents Free Financial Money Magazine Post: August 30, 2009
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Related Posts:
Calculating return on assets (roa)
Calculating Asset Turnover
Calculating Return On Equity
Financial Statements Explained
The Balance Sheet
The Income Statement
Calculating Gross profit Margin
Calculating Operating Margin
Investment Strategy Dollar Cost Averaging
Market Timing
Calculating Net Profit Margin

The Balance Sheet

From The Hoss's Mouth

A company's balance sheet is a document which contains valuable information for any potential investor. It provides a financial snapshot of what a company owns (assets) and what it owes (liabilities) on a given date. Each and every transaction has an equal debit and credit entry, therefore the total value of the assets always equals the total value of the liabilities, hence the name "Balance Sheet".

This financial document is divided into two sections: one contains the assets, the other the liabilities.


The Asset side of the balance sheet shows the fixed and current assets. Fixed assets are both tangible and intangible.

Fixed Tangible Assets: include physical property, such as buildings, land, trucks, equipment, and computers, inventory, etc.

Fixed Intangible Assets: things that you can't touch but do have value such as goodwill, trademarks, patents, and long term investments

Current Assets are short term assets which can fluctuate in value very frequently, often every day. They include but are not limited to cash, short-term investments, stock, and consumer debt.

The Liabilities side of the balance sheet contains a company's current and long-term liabilities.
Current Liabilities are a company's short-term obligations such as current year's taxes, short term loans, money owed to suppliers, rent, payroll and bank overdrafts (if any).

Long-Term Liabilities are liabilities that are generally due after one year, such as long-term loans of financing.

The Hoss reminds you that the examples above do not include all the assets and liabilities a company may or may not have.

The balance sheet shows the potential investor how a company is financed, how much capital it is using, the company's liquidity and how solvent it is. The investor can compare several balance sheets to determine the company's ongoing performance.

The next addition of Hoss Cents Free Financial Money Magazine will provide information on the second financial document we are going to look at, The Income Statement.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: The Income Statement
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